Pension fund trustees have a wide discretion when distributing a benefit

Pension fund trustees often have a difficult task in determining who is a dependant – and how much of a death benefit should be allocated to each dependant – when a fund member had different partners and stepchildren, particularly in the absence of a formal divorce settlement.

The issue of trustees’ discretion when allocating a benefit equitably in such a context came to the fore at the Financial Services Tribunal at a hearing in September.

In September 2020, the FundsAtWork Umbrella Provident Fund decided that a member’s death benefit of R1 798 252.35 would be distributed as follows:

• His wife, 15%. The evidence showed that the deceased had left his wife, who was currently a pensioner, 10 years before his death. She was receiving maintenance of R800 a month from the deceased.
• His son, the applicant, 12%. At the time of the fund’s investigation, he was not living with his father, was 36 years old, and was unemployed.
• His daughter, 12%. She was 32 and unemployed.
• The woman (“RM”) with whom the deceased was living at the time of his death, 37%.
• Two men, who were identified as the deceased’s stepsons, received 12% each. Both lived with the deceased and their mother (RM) at the time of his passing. One, 27 years old, was unemployed, while his 20-year-old brother was in matric. In the case of both stepsons, it was indicated that they were dependent on the deceased because their mother’s salary was lower than his.

‘Not a dependant’

The deceased’s son complained to Pension Funds Adjudicator that RM did not qualify as a dependant as envisaged in section 1 of the Pension Funds Act. He also contended that the stepsons should not have been included in the distribution.

In support of his complaint, he said, among other things, that

• Cohabitation does not establish factual dependence;
• The deceased was still married to his mother, and therefore RM could not be a life partner or a spouse;
• RM was employed and did not depend on the deceased for maintenance;
• His father had not nominated RM as a beneficiary;
• The deceased had not initiated divorce proceedings; and
• RM received R596 048.51 from another pension fund as a result of the death of the deceased.

The PFA dismissed the complaint in December 2020.

The applicant was unhappy with the PFA’s decision for three reasons, the most important of which was whether the fund had made an equitable distribution in accordance with section 37C.

He told the tribunal that the PFA had failed to take into consideration RM’s financial status when the fund made its resolution. He said RM owned a funeral parlour and a house, was employed, and had kept three vehicles belonging to his father.

Trustees’ discretion

In arriving at its decision, the tribunal obviously referred to section 37C and the definitions of “dependant” and “spouse” in section 1. It also looked at the FundsAtWork Umbrella Pension Fund vs Guarnieri case that came before the Supreme Court of Appeal (SCA) in 2019.

The tribunal drew particular attention to the following portion of the SCA’s judgment:

“Having once identified the potential class of dependants, the board of the fund is vested with a large discretion to determine, in the light of its assessment of their respective needs, in what proportions the death benefit will be distributed among the class of dependants.” [The tribunal’s emphasis.]

The tribunal said it was apparent from the Guarnieri case that the trustees of a fund are required to trace and identify dependants of a deceased member. After having identified qualifying dependents, the trustees are required to exercise their large discretion to determine proportions of death benefits.

Regarding whether RM was a dependant, the tribunal said it agreed with the adjudicator that since the legislation does not define what constitutes a permanent life partner, the facts of each case must be considered.

The record showed that:

• The deceased had a relationship with RM;
• The relationship was confirmed by the separated spouse of the deceased;
• The relationship was sustained, on the spouse’s evidence, for 10 years; and
• The deceased and RM shared a common household.

“On these facts, we are of the view that RM was a dependant as envisaged in section 37C(1)(a), read with section 1 of the PFA.”

The tribunal said the benefit had not been allocated in an arbitrary manner.

In respect of the applicant and his sister, the fund indicated that although there was no actual evidence of dependency, it considered:

• Their submissions in respect of receiving cash payment from the deceased;
• The absence of a bad relationship between the deceased and his children; and
• The capacity of the deceased to have supported them on his salary.

In respect of the stepsons, their age, their unemployment and sharing a residence with the deceased appears to have played a role in the allocation and the distribution, the tribunal found.

The application was dismissed.